It’s no secret that the solar power sector has spent much of the last few years down in the dumps. As a glut of panels flooded the marketplace, prices for photovoltaic cells plunged downwards pushing many company’s share prices down for the ride. Some, such as China’s Suntech Power Holdings (NYSE:STP) and Germany’s Q-Cells, have even filed for bankruptcy.
Yet, there may be a ray of sunshine and hope for the beleaguered sector.
As Japan grapples with its own energy crisis following the Fukushima disaster, the nation has quickly added renewables to the top of its generation list after turning its back on nuclear energy. New incentives and demand could see the nation as solar’s saving grace.
For investors, the Land of the Rising Sun could be exactly what the solar sector needs to finally regain some footing in the market.
Moving Up To Number Two
According to Bloomberg New Energy Finance (BNEF), Japan could be the world’s next big market for solar energy. Commercial and utility-scale projects will boost solar installations in the developed nation to 9.4 gigawatts in 2013. That far exceeds earlier forecasts of 3.2 to 4 gigawatts. This will help Japan become the largest solar market in the world after China and jump ahead of the United States, Germany and Italy.
The reason: higher incentives for end-users and a desire to leave its nuclear past behind it.
Following the Fukushima triple disaster of earthquake, tsunami and nuclear reactor meltdown back in March 2011, the nation has shut-down all but two of the country’s nuclear reactors. Given Japan’s hot summers and need for energy, it has none of its own domestic energy resources. Its government began offering incentives through feed-in tariffs (FiT) to encourage investments in energy sources such as wind and solar. These subsidies are about three times the amount of incentives offered in Germany and China. Additionally, the government announced plans to invest over $33 billion into grid modernization over the next 10 years to introduce more solar power into Japan’s energy mix.
These FiT arrangements have already helped spur solar adoption in the nation. Investments in industrial-sized solar projects totaled 222 billion yen or roughly $2.3 billion in Japan last year, adding 580 megawatts of capacity. BNEF estimates the tariffs will increase spending this year to 438 billion yen for 1,460 megawatts. Already, several large projects have been given the go-ahead including the nation’s largest solar installation. A $1.1 billion dollar, 400 megawatt plant will be built on an island and connected to land via an undersea cable.
SEE: Spotlight On The Solar Industry
Playing The Rebirth
For investors, Japan’s focus on solar energy could be the spark necessary to move the beaten down sector higher over the next few years. A broad play like the Guggenheim Solar ETF (NYSEARCA:TAN) may finally be a good bet. However, not all solar manufacturers are going to benefit from Japan’s sunny resurgence. The truth is, Japanese customers want to buy Japanese-produced modules - they have to due to import restrictions and rules.
Leading the way could be Japan’s Panasonic (NYSE: PC). After acquiring rival Sanyo’s assets (including its solar panel business back in 2010) the company has a major supplier and will boost its production of solar panels by about 30% in the year because of government incentives.
Under the recent FiT rules, Panasonic supplied convenience store operator Lawson solar panels for over 1,000 of its shops by the end of February. Lawson has already agreed and is planning on setting up systems for another 1,000 outlets this year. This will help boost profits at the PV producer. Already, solar has become one of the bright spots, with Panasonic forecasting that its solar unit will turn a nice profit as the roll-out continues across both industrial and residential installations in Japan.
Other big winners could be troubled electronics firm and solar pioneer Sharp (OTC:SHCAY), ceramics and panel manufacturer Kyocera (NYSE:KYO) and Hitachi (OTC:HTHIY). All three make products for both industrial end users as well as residential consumers and have seen rising demand as the tariffs have been implanted.
SEE: Green Energy: Why We're Still Not Using It
The Bottom Line
While broad solar investments like the Market Vectors Solar Energy ETF (NYSEARCA:KWT) have been terrible, Japan remains a bright spot. The nation’s search for alternatives to nuclear energy has helped boost its domestic solar market by leaps and bounds. Now it is poised to install PV panels are a record pace. For investors, Japanese solar manufacturers could finally have their moment in the sun.
At the time of writing, Aaron Levitt did not own any shares in any company mentioned in this article.